Policy Development

Below is a concise yet comprehensive update for founders, investors, and ecosystem stakeholders.

1. Cabinet Approves ₹10,000 Crore Startup India Fund of Funds 2.0:

In a major boost to India’s startup ecosystem, the Union Cabinet has approved the establishment of the Startup India Fund of Funds 2.0 (FoF 2.0) with a total corpus of ₹10,000 crore to mobilize venture capital for startups across the country. The scheme is designed to accelerate the next phase of India’s startup journey by mobilizing long-term domestic capital, strengthening the venture capital ecosystem, and supporting innovation-led entrepreneurship nationwide.

Launched under the Startup India initiative, FoF 2.0 builds on nearly a decade of ecosystem development since 2016.

The earlier Fund of Funds for Startups (FFS 1.0) committed its entire ₹10,000 crore corpus to 145 AIFs, which collectively invested over ₹25,500 crore into more than 1,370 startups across sectors including AI, robotics, fintech, clean tech, manufacturing, biotech, space tech and others.

Key Focus Areas under FoF 2.0:

• Deep tech and tech-driven innovative manufacturing requiring patient, long-term capital.
• Empowering early-growth stage founders to reduce funding-related failures.
• Expanding investment beyond major metros to ensure national reach.
• Addressing high-risk capital gaps in priority sectors critical for self-reliance and economic growth.
• Strengthening India’s domestic venture capital base, particularly smaller funds.

FoF 2.0 is expected to play a pivotal role in advancing innovation-led growth and strengthening India’s economic resilience while generating high-quality jobs.

2. Startup India Fund of Funds 2.0 – What It Means for Founders:

February 2026 marks a structural shift:

• Larger capital mobilisation through FoF 2.0
• Formal recognition and policy support for Deep Tech
• Expanded eligibility window (20 years / ₹300 crore for Deep Tech)
• Stricter fund utilisation norms
• Updated tax certification framework ahead of Income-tax Act, 2025

This is a pivotal moment for startups in deep tech, manufacturing, AI, biotech, robotics, space tech, and capital-intensive sectors.

Regulatory Amendments:

1. DPIIT Issues New Startup & Deep Tech Notification (G.S.R. 108(E) dated 04 February 2026):

On 4 February 2026, the Ministry of Commerce & Industry issued Notification G.S.R. 108(E), superseding the earlier 19 February 2019 framework.

A. Revised Definition of “Startup”:

An entity qualifies as a Startup if it:

• Is incorporated/registered in India as a private limited company, LLP, partnership firm, multi-state cooperative society, or cooperative society.
• Is within 10 years from incorporation/registration.
• Has turnover not exceeding ₹200 crore in any financial year since incorporation.
• Is working towards innovation, development or improvement of products/services, or has a scalable model with high employment or wealth creation potential.

Entities formed through splitting or reconstruction of an existing business are not eligible.

A startup ceases to qualify after 10 years or if turnover exceeds ₹200 crore.

B. Introduction of “Deep Tech Startup” Category:

The notification formally defines “Deep Tech Startup” as a Startup that:

• Develops solutions based on new scientific or engineering advancements.
• Has high R&D expenditure relative to revenue/funding.
• Owns or is creating significant novel IP and pursuing commercialization.
• Faces long gestation periods, high capital requirements, and technical or scientific uncertainty.

Special Relaxations for Deep Tech Startups:

• Recognition validity extended to 20 years (instead of 10 years).
• Turnover threshold increased to ₹300 crore (instead of ₹200 crore).

Deep Tech Startups are deemed to be Startups for all purposes under the notification unless otherwise specified.

2. 80-IAC Tax Holiday Certification Framework:

Eligible Startups (private limited companies or LLPs) fulfilling the conditions under Section 80-IAC may apply to the Inter-Ministerial Board for certification through Form-1 along with specified documentation. The Board may grant or reject certification after examining documents and making necessary enquiries.

From 1 April 2026, the provisions of the Income-tax Act, 2025 will come into effect.

3. Important Compliance Conditions on Fund Utilization:

During the recognition period, startups must deploy funds primarily toward core business activities, innovation, research, scaling, or operational requirements.

Startups shall not invest (unless integral to core business operations) in:

• Residential property not used for business.
• Non-business land/buildings.
• Loans and advances (unless lending is substantial part of business).
• Capital contributions to other entities (unless strategically related).
• Investments in shares/securities (except treasury or core business).
• High-value vehicles/aircraft/yachts (unless operational/stock-in-trade).
• Jewellery or luxury assets (unless stock-in-trade).
• Speculative or non-productive assets notified by the Government.

Incorrect information may result in revocation of certification.

If you are raising capital, applying for DPIIT recognition, or considering 80-IAC certification, now is the time to review eligibility, compliance structure, and documentation readiness.

Let’s build responsibly and scale strategically.